Amendments to Regulations for the Government Securities Act of 1986

DEPARTMENT OF THE TREASURY

Office of the Under Secretary for Domestic Finance

17 CFR Parts 400, 401, 402, 403, 404, 405, and 450

RIN 1505-AA44

Amendments to Regulations for the Government Securities Act of

1986

AGENCY: Office of the Under Secretary for Domestic Finance, Treasury.

ACTION: Final rule.

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SUMMARY: The Department of the Treasury (``Department'') is publishing,

as a final rule, amendments to the financial responsibility rules in

part 402 and a conforming amendment to a recordkeeping requirement in

part 404 of the regulations issued under the Government Securities Act

of 1986 (``GSA''). The amendments raise the minimum capital

requirements for all government securities brokers and dealers subject

to the requirements of Sec. 402.2 and establish a written notification

requirement for certain withdrawals of capital. The amendments parallel

the Securities and Exchange Commission's (``SEC'') final and proposed

amendments to the minimum net capital requirements for brokers and

dealers subject to the requirements of 17 CFR 240.15c3-1 (Rule 15c3-1)

and final rules regarding the withdrawal of capital. The Department is

adopting the amendments unchanged from their proposed form.

DATES: Effective date: March 31, 1995. Further dates: see Sec. 402.2e

(Appendix E to Sec. 402.2) for the phase-in schedule for the increased

minimum capital levels.

FOR FURTHER INFORMATION CONTACT: Don Hammond (Assistant Director) or

Kerry Lanham (Government Securities Specialist) at 202-219-3632. (TDD

for the hearing impaired: 202-219-3988.)

SUPPLEMENTARY INFORMATION:

I. Background

The amendments to the Department's financial responsibility rules

in part 402 raise the minimum capital requirements and establish

written notification requirements for certain capital withdrawals for

those government securities brokers and dealers subject to the

provisions of Sec. 402.2. Additionally, the Department is making a

conforming change to the recordkeeping requirements of part 404 which

is necessitated by the revisions to the minimum capital levels. The

amendments parallel rule amendments adopted or proposed by the SEC. The

Department's amendments will increase investor confidence in the

financial responsibility of government securities brokers and dealers

without overburdening the government securities market.

The SEC published its final capital withdrawal regulations on March

5, 1991,1 finalized its first change in minimum capital levels on

November 24, 1992,2 but has not yet finalized its second

proposal3 on minimum capital levels for certain introducing firms.

It is Treasury's objective, where practical, to have consistency with

the SEC capital standard4 and, ultimately, develop a uniform

capital rule for all government securities brokers and dealers

registered with the SEC.5

\1\Securities Exchange Act Release No. 28927 (February 20,

1991), 56 FR 9124 (March 5, 1991).

\2\Securities Exchange Act Release No. 31511 (November 24,

1992), 57 FR 56973 (December 2, 1992).

\3\Securities Exchange Act Release No. 31512 (November 24,

1992), 57 FR 57027 (December 2, 1992).

\4\17 CFR 240.15c3-1.

\5\The Treasury would have acted sooner on these amendments but

its rulemaking authority under the GSA expired on October 1, 1991,

and was not reauthorized until December 17, 1993. (107 Stat. 2344,

Pub. L. 103-202).

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The Department first published these amendments in proposed form on

June 22, 1994,6 and the comment period closed on August 22, 1994.

In addition, the National Association of Securities Dealers distributed

the proposed changes to its potentially affected members. Treasury

received no comments in response to the proposal.

\6\59 FR 32155 (June 22, 1994).

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II. Analysis

A. Minimum Capital Requirements

The SEC has either increased or proposed increasing the minimum net

capital requirements for most brokers and dealers subject to Rule 15c3-

1 to an amount ranging up to $250,000, depending on the type of

business conducted by the broker or dealer. The Treasury minimum dollar

capital levels are based on liquid capital after deducting haircuts,

which is comparable to the SEC's calculation of net capital. The

Treasury capital rule7 currently has a $5,000 minimum liquid

capital requirement for introducing brokers8 and a $25,000 minimum

liquid capital requirement for all other government securities brokers

and dealers9 subject to the rule. The Department believes that

increasing the minimum levels is appropriate in order to provide better

protection to investors [[Page 11023]] in the event of a government

securities broker's or dealer's insolvency and to reflect the current

realities of the government securities market. Accordingly, the

Department is increasing the minimum capital requirements for all

government securities brokers and dealers subject to the provisions of

Sec. 402.2. The other capital requirement--that liquid capital be equal

to at least 120% of haircuts10--is unaffected by this action.

\7\17 CFR 402.2.

\8\17 CFR 402.2(c).

\9\17 CFR 402.2(b).

\10\The Treasury capital rule requires that a government

securities broker or dealer maintain a capital level of the greater

of (i) 120% of total haircuts; or (ii) the minimum dollar capital

amounts, computed by deducting total haircuts from liquid capital,

applicable to its business.

The increases are implemented by creating four minimum capital

standards from the two current requirements, reflecting a better

differentiation of the risks related to a government securities

broker's or dealer's operations based on the type of government

securities business it conducts. The four minimum capital requirements

being adopted are as follows: (1) Government securities brokers and

dealers that carry customer or broker-dealer accounts are subject to a

minimum level of $250,000; (2) government securities brokers and

dealers that carry customer accounts but that operate under the

exemption provided by Rule 15c3-3(k)(2)(i)\11\ have a minimum

requirement of $100,000; (3) government securities brokers that

introduce accounts on a fully disclosed basis and receive but do not

hold customer securities are subject to a minimum requirement of

$50,000; and (4) introducing firms that never handle customer funds or

securities are subject to a minimum requirement of $25,000.

\11\17 CFR 240.15c3-3(k)(2)(i).

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These changes represent increases from the current minimum levels

of between $20,000 and $225,000, depending on the type of business

conducted by the government securities broker or dealer. The Department

is establishing fewer levels than the SEC has proposed since the

operations of registered government securities brokers and dealers do

not encompass all the activities available to diversified brokers or

dealers. The increases that the Department is adopting are modest

relative to the size and complexity of the government securities market

and the operations of government securities brokers and dealers.

An analysis of the government securities brokers and dealers

subject to the provisions of Sec. 402.2 indicates that, as of September

30, 1994, only four, out of a total of 32, would not be in compliance

with the fully phased-in minimum capital levels. One of these firms

would not be in compliance with the new requirements for introducing

firms, two would be out of compliance with the $100,000 requirement and

one would not meet the $250,000 level. The aggregate capital shortfall

of these four firms is less than $150,000. To ease the compliance

burden and to provide a period for the affected government securities

brokers and dealers to raise additional capital, if necessary, the

Department is adding an Appendix E to Sec. 402.2 which phases in the

increases over approximately an 18-month time frame from the effective

date. This corresponds to the phase-in time frames that were used by

the SEC.

B. Capital Withdrawal Requirements

The SEC promulgated final rules regarding the withdrawal of capital

by brokers and dealers.\12\ These rules require written notification to

the SEC and the broker's or dealer's designated examining authority of

certain capital withdrawals, add a restriction on the withdrawal of

capital based on the ratio of net capital to securities haircuts,

provide additional definitions, and permit the SEC, by order, to

prohibit the withdrawal of capital in certain described circumstances.

The Department is amending its capital withdrawal provisions\13\ to

include the notification requirements and certain definitions but has

determined not to adopt the other two requirements for the reasons

described in the preamble to the proposed rule.

\12\See Supra note 1.

\13\17 CFR 402.2(i).

The notification provisions require post-withdrawal notification of

certain significant capital withdrawals as well as prior notification

for larger withdrawals. The timing of the notification is determined by

the aggregate size of total withdrawals relative to the government

securities broker's or dealer's excess liquid capital\14\ over a 30

calendar day period. Once aggregate withdrawals have exceeded 20

percent of a government securities broker's or dealer's excess liquid

capital in a 30 calendar day period, the government securities broker

or dealer has two business days thereafter in which to file

notification of the withdrawals. Aggregate withdrawals that would

result in a government securities broker or dealer exceeding in the

aggregate 30 percent of excess liquid capital in any 30 calendar day

period require notification two business days prior to such

withdrawal.\15\ A government securities broker or dealer may use the

level of excess liquid capital calculated in its most recent Form G-

405, ``Report on Finances and Operations of Government Securities

Brokers and Dealers (FOGS)'' filing,\16\ provided the firm assures

itself that this amount has not materially changed since that time. A

government securities broker or dealer is not required to provide

notice to the Department, but instead notice is to be sent to the SEC

and to the broker's or dealer's designated examining authority.

\14\Excess liquid capital is that amount of liquid capital which

exceeds the greater of the amount of capital required under (i)

Sec. 402.2(a); or (ii) Sec. 402.2 (b) or (c) as applicable.

\15\If prior notification is required, the post-withdrawal

notification must also be filed.

\16\17 CFR 405.2 requires certain government securities brokers

and dealers to file monthly and quarterly financial reports.

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Net withdrawals that, in the aggregate, are less than $500,000 in

any 30 calendar day period or those that represent securities or

commodities transactions between affiliates are excluded from the

reporting requirement. The exclusion for securities and commodities

transactions requires that the transactions be conducted in the

ordinary course of business and settled no later than two business days

after the date of the transaction. Forward settling transactions

between affiliates are not eligible for this exclusion. Therefore, net

losses on forward contracts or net payments on swap agreements, if due

an affiliate, could trigger the notice requirement. The Department

specifically requested comment about the limitations on this exception.

As stated earlier, no comments were received on any aspect of the rule

and, therefore, the Department is adopting this provision and the rule

as proposed.

The SEC's capital withdrawal rule has a provision giving the SEC

authority to prohibit a withdrawal of capital by a broker or dealer,

for up to 20 business days, if the withdrawal would exceed 30 percent

of excess net capital and is deemed detrimental to the financial

integrity of the broker or dealer or may unduly jeopardize the broker's

or dealer's ability to repay its creditors.\17\ The SEC intends that

this provision be used in emergency situations and the rule provides

for an expeditious review of the SEC's action. For the reasons

discussed in the preamble to the proposed rule and after receiving no

comments to the contrary, the Department has determined that a similar

provision will not be incorporated in the Treasury capital rule.

\17\17 CFR 240.15c3-1(e)(3).

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The Department's decision not to enact a corresponding order

provision is [[Page 11024]] supported by the fact that the SEC has

existing temporary cease and desist authority. A temporary cease and

desist order, while different from a capital withdrawal order, serves a

similar purpose. Both are emergency remedies that can be expeditiously

applied. Prior to issuing a temporary cease and desist order, the SEC

must provide notice and opportunity for a hearing unless the SEC ``* *

*determines that notice and hearing prior to entry would be

impracticable or contrary to the public interest.''\18\

\18\15 U.S.C. 78u-3(c)(1).

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The more limited scope of the temporary cease and desist order is

not problematic to the Department because the authority provides the

SEC with the ability to issue such an order not only if a rule

violation has occurred but also if one is threatened. Because the SEC

is the appropriate regulatory agency for government securities brokers

or dealers subject to Sec. 402.2, an impending violation of a

Sec. 402.2 requirement could be cause for the issuance of a temporary

cease and desist order. As discussed more fully in the preamble to the

proposed rule, the Department believes that, in lieu of developing a

separate capital withdrawal order provision, it should rely on the

SEC's existing cease and desist order authority.

Consistent with this approach, the Department also is excluding

this provision of Rule 15c3-1 from the compliance requirements for

those government securities brokers and dealers registered under

Section 15C of the Securities Exchange Act of 1934 (15 U.S.C. 78o-5)

that are subject to the SEC capital rule (i.e., interdealer brokers

operating under Sec. 402.1(e) and futures commission merchants).

In adopting the withdrawal provisions, the Department has

restructured certain related definitions of terms into a Miscellaneous

Provisions paragraph (i)(3) and has added a description of what

constitutes an advance or loan of liquid capital, which is one

component of the restricted activities.

C. Conforming Change

Due to the revisions of the minimum capital requirements under both

the SEC and Treasury capital rules, a conforming change is required in

the recordkeeping provisions of part 404. Specifically, paragraph

404.2(a)(4) contains references to the minimum dollar capital amounts

required of government securities clearing brokers and dealers. The

Department is revising these references in accordance with the fully

phased-in minimum capital level of $250,000 required of clearing firms.

III. Special Analyses

It has been determined that these amendments are not a

``significant regulatory action'' as defined in Executive Order 12866.

Therefore, a Regulatory Assessment is not required.

In the preamble to the proposed rules, pursuant to the Regulatory

Flexibility Act (5 U.S.C. 601, et seq.), the Department certified that

these amendments, if adopted, would not have a significant economic

impact on a substantial number of small entities. Accordingly, a

regulatory flexibility analysis was not prepared. In reviewing the

final rules being adopted herein and in light of the fact that no

comments were received, the Department has concluded that there is no

reason to alter the previous certification.

The collections of information contained in the final regulations

have been reviewed and approved by the Office of Management and Budget

in accordance with the Paperwork Reduction Act (44 U.S.C. 3504(h))

under control number 1535-0089.

Estimated total annual reporting burden: 5 hours.

Estimated average annual burden per respondent: 1 hour.

Estimated number of respondents: 5.

Estimated annual frequency of response: Twice.

Comments concerning the accuracy of this burden estimate and

suggestions for reducing this burden should be directed to the Forms

Management Branch, Bureau of the Public Debt, Department of the

Treasury, Parkersburg, West Virginia 26106-1328; and to the Office of

Management and Budget, Paperwork Reduction Project 1535-0089,

Attention: Desk Officer for Department of the Treasury, Washington, DC

20503.

List of Subjects

17 CFR Part 402

Brokers, Government securities.

17 CFR Part 404

Banks, banking, Brokers, Government securities, Reporting and

recordkeeping requirements.

For the reasons set out in the preamble, 17 CFR chapter IV is

amended as follows:

PART 402--FINANCIAL RESPONSIBILITY

1. The authority citation for part 402 is revised to read as

follows:

Authority: 15 U.S.C. 78o-5(b)(1)(A), (b)(4).

2. Section 402.1 is amended by revising paragraphs (d) and (e)(1)

to read as follows:

Sec. 402.1 Application of part to registered brokers and dealers and

financial institutions; special rules for futures commission merchants

and government securities interdealer brokers; effective date.

* * * * *

(d) Futures commission merchants. A futures commission merchant

subject to Sec. 1.17 of this title that is a government securities

broker or dealer but is not a registered broker or dealer shall not be

subject to the limitations of Sec. 402.2 but rather to the capital

requirement of Sec. 1.17 or Sec. 240.15c3-1, except paragraph (e)(3)

thereof, of this title, whichever is greater.

(e) Government securities interdealer broker. (1) A government

securities interdealer broker, as defined in paragraph (e)(2) of this

section, may, with the prior written consent of the Secretary, elect

not to be subject to the limitations of Sec. 402.2 but rather to be

subject to the requirements of Sec. 240.15c3-1 of this title (SEC Rule

15c3-1), except paragraphs (c)(2)(ix) and (e)(3) thereof, and

paragraphs (e)(3) through (8) of this section by filing such election

in writing with its designated examining authority. A government

securities interdealer broker may not revoke such election without the

written consent of its designated examining authority.

* * * * *

3. Section 402.2 is amended by revising paragraphs (b), (c) and

(i), and by adding an OMB parenthetical at the end of the section to

read as follows:

Sec. 402.2 Capital requirements for registered government securities

brokers or dealers.

* * * * *

(b)(1) Minimum liquid capital for brokers or dealers that carry

customer accounts. Notwithstanding the provisions of paragraph (a) of

this section, a government securities broker or dealer that carries

customer or broker or dealer accounts and receives or holds funds or

securities for those persons within the meaning of Sec. 240.15c3-

1(a)(2)(i) of this title, shall have and maintain liquid capital in an

amount not less than $250,000 (see paragraph (a) of Appendix E to this

section, Sec. 402.2e, for temporary minimum requirements), after

deducting total haircuts as defined in paragraph (g) of this section.

(2) Minimum liquid capital for brokers or dealers that carry

customer accounts, but do not generally hold customer funds or

securities. Notwithstanding the provisions of [[Page 11025]] paragraphs

(a) and (b)(1) of this section, a government securities broker or

dealer that carries customer or broker or dealer accounts and is exempt

from the provisions of Sec. 240.15c3-3 of this title, as made

applicable to government securities brokers and dealers by Sec. 403.4

of this chapter, pursuant to paragraph (k)(2)(i) thereof (17 CFR

240.15c3-3(k)(2)(i)), shall have and maintain liquid capital in an

amount not less than $100,000 (see paragraph (b) of Appendix E to this

section, Sec. 402.2(e), for temporary minimum requirements), after

deducting total haircuts as defined in paragraph (g) of this section.

(c)(1) Minimum liquid capital for introducing brokers that receive

securities. Notwithstanding the provisions of paragraphs (a) and (b) of

this section, a government securities broker or dealer that introduces

on a fully disclosed basis transactions and accounts of customers to

another registered or noticed government securities broker or dealer

but does not receive, directly or indirectly, funds from or for, or owe

funds to, customers, and does not carry the accounts of, or for,

customers shall have and maintain liquid capital in an amount not less

than $50,000 (see paragraph (c) of Appendix E to this section,

Sec. 402.2(e), for temporary minimum requirements), after deducting

total haircuts as defined in paragraph (g) of this section. A

government securities broker or dealer operating pursuant to this

paragraph (c)(1) may receive, but shall not hold customer or other

broker or dealer securities.

(2) Minimum liquid capital for introducing brokers that do not

receive or handle customer funds or securities. Notwithstanding the

provisions of paragraphs (a), (b) and (c)(1) of this section, a

government securities broker or dealer that does not receive, directly

or indirectly, or hold funds or securities for, or owe funds or

securities to, customers, and does not carry accounts of, or for,

customers and that effects ten or fewer transactions in securities in

any one calendar year for its own investment account shall have and

maintain liquid capital in an amount not less than $25,000 (see

paragraph (d) of Appendix E to this section, Sec. 402.2(e), for

temporary minimum requirements), after deducting total haircuts as

defined in paragraph (g) of this section.

* * * * *

(i) Provisions relating to the withdrawal of equity capital.

(1) Notice Provisions. No equity capital of the government

securities broker or dealer or a subsidiary or affiliate consolidated

pursuant to Appendix C to this section, Sec. 402.2c, may be withdrawn

by action of a stockholder or partner, or by redemption or repurchase

of shares of stock by any of the consolidated entities or through the

payment of dividends or any similar distribution, nor may any unsecured

advance or loan be made to a stockholder, partner, sole proprietor,

employee or affiliate without providing written notice, given in

accordance with paragraph (i)(1)(iv) of this section, when specified in

paragraphs (i)(1) (i) and (ii) of this section:

(i) Two business days prior to any withdrawals, advances or loans

if those withdrawals, advances or loans on a net basis exceed in the

aggregate in any 30 calendar day period, 30 percent of the government

securities broker's or dealer's excess liquid capital. A government

securities broker or dealer, in an emergency situation, may make

withdrawals, advances or loans that on a net basis exceed 30 percent of

the government securities broker's or dealer's excess liquid capital in

any 30 calendar day period without giving the advance notice required

by this paragraph, with the prior approval of its designated examining

authority. When a government securities broker or dealer makes a

withdrawal with the consent of its designated examining authority, it

shall in any event comply with paragraph (i)(1)(ii) of this section;

and

(ii) Two business days after any withdrawals, advances or loans if

those withdrawals, advances or loans on a net basis exceed in the

aggregate in any 30 calendar day period, 20 percent of the government

securities broker's or dealer's excess liquid capital.

(iii) This paragraph (i)(1) of this section does not apply to:

(A) Securities or commodities transactions in the ordinary course

of business between a government securities broker or dealer and an

affiliate where the government securities broker or dealer makes

payment to or on behalf of such affiliate for such transaction and then

receives payment from such affiliate for the securities or commodities

transaction within two business days from the date of the transaction;

or

(B) Withdrawals, advances or loans which in the aggregate in any

such 30 calendar day period, on a net basis, equal $500,000 or less.

(iv) Each required notice shall be effective when received by the

Commission in Washington, DC, the regional or district office of the

Commission for the area in which the government securities broker or

dealer has its principal place of business, and the government

securities broker's or dealer's designated examining authority.

(2) Withdrawal Limitations. No equity capital of the government

securities broker or dealer or a subsidiary or affiliate consolidated

pursuant to Appendix C to this section, Sec. 402.2c, may be withdrawn

by action of a stockholder or a partner, or by redemption or repurchase

of shares of stock by any of the consolidated entities or through the

payment of dividends or any similar distribution, nor may any unsecured

advance or loan be made to a stockholder, partner, sole proprietor,

employee or affiliate if, after giving effect thereto and to any other

such withdrawals, advances or loans and any Payments of Payment

Obligations (as defined in Sec. 240.15c3-1d of this title, Appendix D

to SEC Rule 15c3-1, modified as provided in Appendix D to this section,

Sec. 402.2d) under satisfactory subordination agreements which are

scheduled to occur within 180 calendar days following such withdrawal,

advance or loan, either:

(i) The ratio of liquid capital to total haircuts, determined as

provided in Sec. 402.2, would be less than 150 percent; or

(ii) Liquid capital minus total haircuts would be less than 120

percent of the minimum capital required by Sec. 402.2(b) or

Sec. 402.2(c) as applicable; or

(iii) In the case of any government securities broker or dealer

included in such consolidation, the total outstanding principal amounts

of satisfactory subordination agreements of the government securities

broker or dealer (other than such agreements which qualify as equity

under Sec. 240.15c3-1(d) of this title) would exceed 70% of the debt-

equity total as defined in Sec. 240.15c3-1(d).

(3) Miscellaneous Provisions. (i) Excess liquid capital is that

amount in excess of the amount required by the greater of Sec. 402.2(a)

or, Secs. 402.2 (b) or (c), as applicable. For the purposes of

paragraphs (i)(1) and (i)(2) of this section, a government securities

broker or dealer may use the amount of excess liquid capital, liquid

capital and total haircuts reported in its most recently required filed

Form G-405 for the purposes of calculating the effect of a projected

withdrawal, advance or loan relative to excess liquid capital or total

haircuts. The government securities broker or dealer must assure itself

that the excess liquid capital, liquid capital or the total haircuts

reported on the most recently required filed Form G-405 have not

materially changed since the time such report was filed.

(ii) The term equity capital includes capital contributions by

partners, par or [[Page 11026]] stated value of capital stock, paid-in

capital in excess of par, retained earnings or other capital accounts.

The term equity capital does not include securities in the securities

accounts of partners and balances in limited partners' capital accounts

in excess of their stated capital contributions.

(iii) Paragraphs (i)(1) and (i)(2) of this section shall not

preclude a government securities broker or dealer from making required

tax payments or preclude the payment to partners of reasonable

compensation, and such payments shall not be included in the

calculation of withdrawals, advances or loans for purposes of

paragraphs (i)(1) and (i)(2) of this section.

(iv) For the purposes of this subsection (i), any transaction

between a government securities broker or dealer and a stockholder,

partner, sole proprietor, employee or affiliate that results in a

diminution of the government securities broker's or dealer's liquid

capital shall be deemed to be an advance or loan of liquid capital.

* * * * *

(Approved by the Office of Management and Budget under control

number 1535-0089)

4. By adding Sec. 402.2e (Appendix E) as follows:

Sec. 402.2e Appendix E--Temporary Minimum Requirements.

(a) A government securities broker or dealer that falls within the

provisions of paragraph (b)(1) of Sec. 402.2 shall maintain not less

than the greater of:

(1) The amount of liquid capital required under paragraph (a) of

Sec. 402.2(a); or

(2) The amount of liquid capital, after deducting total haircuts,

of:

(i) $25,000 through June 30, 1995;

(ii) $100,000 from July 1, 1995 through December 31, 1995;

(iii) $175,000 from January 1, 1996 through June 30, 1996; and

(iv) $250,000 from July 1, 1996 and thereafter.

(b) A government securities broker or dealer that falls within the

provisions of paragraph (b)(2) of Sec. 402.2 shall maintain not less

than the greater of:

(1) The amount of liquid capital required under paragraph (a) of

Sec. 402.2; or

(2) The amount of liquid capital, after deducting total haircuts,

of:

(i) $25,000 through June 30, 1995;

(ii) $50,000 from July 1, 1995 through December 31, 1995;

(iii) $75,000 from January 1, 1996 through June 30, 1996; and

(iv) $100,000 from July 1, 1996 and thereafter.

(c) A government securities broker that falls within the provisions

of paragraph (c)(1) of Sec. 402.2 shall maintain not less than the

greater of:

(1) The amount of liquid capital required under paragraph (a) of

Sec. 402.2; or

(2) The amount of liquid capital, after deducting total haircuts,

of:

(i) $5,000 through June 30, 1995;

(ii) $20,000 from July 1, 1995 through December 31, 1995;

(iii) $35,000 from January 1, 1996 through June 30, 1996; and

(iv) $50,000 from July 1, 1996 and thereafter.

(d) A government securities broker that falls within the provisions

of paragraph (c)(2) of Sec. 402.2 shall maintain not less than the

greater of:

(1) The amount of liquid capital required under paragraph (a) of

Sec. 402.2; or

(2) The amount of liquid capital, after deducting total haircuts,

of:

(i) $5,000 through June 30, 1995;

(ii) $11,000 from July 1, 1995 through December 31, 1995;

(iii) $18,000 from January 1, 1996 through June 30, 1996; and

(iv) $25,000 from July 1, 1996 and thereafter.

* * * * *

PART 404--RECORDKEEPING AND PRESERVATION OF RECORDS

5. The authority citation for Part 404 is revised to read as

follows:

Authority: 15 U.S.C. 78o-5(b)(1)(B), (b)(1)(C), (b)(4).

6. Section 404.2 is amended by revising paragraph (a)(4) to read as

follows:

Sec. 404.2 Records to be made and kept current by registered

government securities brokers and dealers; records of non-resident

registered government securities brokers and dealers.

(a) * * *

(4) Paragraph 240.17a-3(b)(1) is modified to read as follows:

``(1) This section shall not be deemed to require a government

securities broker or dealer registered pursuant to Section 15C(a)(1)(A)

of the Act (15 U.S.C. 78o-5(a)(1)(A)) to make or keep such records of

transactions cleared for such government securities broker or dealer as

are customarily made and kept by a clearing broker or dealer pursuant

to the requirements of Secs. 240.17a-3 and 240.17a-4: Provided, that

the clearing broker or dealer has and maintains net capital of not less

than $250,000 (or, in the case of a clearing broker or dealer that is a

registered government securities broker or dealer, liquid capital less

total haircuts, determined as provided in Sec. 402.2 of this title, of

not less than $250,000) and is otherwise in compliance with

Sec. 240.15c3-1, Sec. 402.2 of this title, or the capital rules of the

exchange of which such clearing broker or dealer is a member if the

members of such exchange are exempt from Sec. 240.15c3-1 by paragraph

(b)(2) thereof.''.

* * * * *

Secs. 400.4, 400.5, 401.9, 403.5, 404.2, 404.3, 404.4, 404.5, 405.2,

and 450.4 [Amended]

7. For each section indicated in the list above, remove the Office

of Management and Budget control number from the parenthetical

statement at the end of each section, and add in its place ``1535-

0089'':

Dated: February 15, 1995.

Frank N. Newman,

Deputy Secretary.

[FR Doc. 95-4941 Filed 2-28-95; 8:45 am]

BILLING CODE 4810-39-W